Concept of Islam & Economics

Islam encompasses the essence of economic well-being and development of Muslims at individual, familial, societal, state and Ummah levels. Figure-1 below illustrates the Islamic view a Muslim holds about life and the place of his economic activities including banking and financial activities within this framework.

Islam may be perceived as comprising three basic elements. The first element is aqidah, which concerns all forms of faith and belief by a Muslim in Allah and his will; from the fundamental faith in His being to the ordinary beliefs in His individual commands (ahkam). The second is Shari‘ah, which concerns all forms of practical actions by a Muslim manifesting his faith and belief. The third is akhlaq, which concerns behavior, attitude and work ethics with which a Muslim performs.

Shari‘ah being the practical aspect of a Muslim’s daily life is then divided into two: ibadat and muamalat. Ibadat is concerned with the practicalities of his worship to Allah i.e. man-God relationship. Whereas muamalat apply to practicalities of a Muslim’s mundane daily life, in the context of various forms of man-man relationship.

Figure 1: Islam & Shari‘ah

A significant part of muamalat comprises of the conduct of a Muslim’s economic activities within his economic system. Thus, in Islamic scheme of life and Shari‘ah framework, a Muslim’s banking and financial activities can be traced to his economic activities, to muamalat, to Shari‘ah, to Islam and finally to Allah. This is the root of Islamic banking and finance.

Source: Towards Islamic Banking: Experience and Challenges, Institute of Policy Studies. Republished with permission.